Sapling Review

(Chapter 1) total income of everyone in the economy adjusted for the base year prices is called

RGDP

(Chapter 8) your friend claims "devoting a larger share of national output to investment would help restore rapid productivity growth". Having studied the Solow growth model, you respond with: 1. "An increase in investment and savings would increase productivity per worker in the short run, but it would only have a level effect in the LR" 2. "devoting more output to investment would increase capital per worker and ultimately decrease output per worker" 3. "an increase in saving and investment would increase productivity per worker, but it would decrease total output" 4. "devoting more output to investment would decrease output per worker and not help productivity growth in the LR"

"an increase in investment and savings would increase productivity per worker in the short run, but it would only have a level effect in the LR"

(Chapter 2) If GDP (measured in billions of current dollars) is $5,465, consumption is $3,657, investment is $741, and net exports are -$1,910, then government purchases are:

$2,977

(Chapter 9) in the Solow model w tech progress, the SS growth rate of output per effective worker is:

0

(Chapter 2) True or False? 1. personal consumption has been the dominant component of GDP over the past half century 2. the US economy has transformed from a net importer to a net exporter over the last half century 3. domestic investment has fallen slightly over the last half century 4. total gov spending has generally remained under 20% of GDP over the past half century

1. T 2. F 3. T 4. F

(Chapter 9) assume the country is in a SS: 1. in the solow model w tech progress, capital's share of income is ___, and labor's share of income is ____ 2. in the solow model w tech progress, total capital income and total labor income grow at the rate of ____ 3. in the solow model w tech progress, the real rental price of capital grows at the rate of ___, and the real wage grows at the rate of ___. (Hint: the real rental price of capital equals total capital income divided by the capital stock, and the real wage equals total labor income divided by the labor force).

1. constant, constant 2. n+g 3. zero, g

(Chapter 8) In the discussion of German and Japanese postwar growth, the text describes what happens when part of the capital stock is destroyed in a war. By contrast, suppose that war doesn't directly affect the capital stock but that casualties affect the labor force. Assume that the economy was in a steady state before the war, the savings rate is unchanged, and that the rate of pop growth is the same as before the war. 1. what's the immediate impact on total output? 2. what's the immediate impact on output per person? 3. what happens subsequently to output per person in the postwar economy? 4. what happens to the growth rate of output per worker after the war but before the economy reaches a new steady-state?

1. it decreases 2. it increases 3. it declines 4. it's < 0

(Chapter 8) many demographers predict that the US will have 0 pop. growth in the coming decades in contrast to historical avg pop. growth of 1% 1. the slowdown in pop. growth will ___ the growth of total output and ___ the growth of output per worker 2. ultimately, the economy will reach a new SS, and total output will be ___ , and the growth of output per worker will be ____

1. slow down, increase 2. lower, zero

(Chapter 9) if the japanese prod function is a cobb-douglas w capital share 0.3, output growth is 3% per year, depreciation is 4% per year, and the capital output ratio is 2.5, the saving rate that is consistent w SS growth is:

17.5%

(Chapter 8) your friend replies "sure but the standard of living will still increase". You: 1. agree. if the economy is above the GR SS, then the increase in saving will decrease consumption. however, in the LR, consumption will be maximized. 2. disagree. if the economy is below the GR SS, then the increase in saving will increase consumption. however, in the LR, consumption will fall. 3. agree. if the economy is below the GR SS, then the increase in saving will decrease consumption. however, in the LR, consumption will be maximized. 4. disagree bc if investment and savings increase, then consumption will decrease. we can't be better off if we consume less.

3. agree. if the economy is below the GR SS, then the increase in saving will decrease consumption. however, in the LR, consumption will be maximized.

(Chapter 9) if the labor force is growing at a 3% rate and the efficiency of a unit of labor is growing at a 2% rate, then the number of effective workers is growing approximately at the rate of:

5%

(Chapter 1) in the US economy today, RGDP per person, compared with its level in 1900 is about

8x as high

(Chapter 2) the market value of all final goods and services produced within an economy in a given period of time is called:

GDP - gross domestic product

(Chapter 8) assume that the 2 economies are identical in every way except that one has a higher saving rate. according to the solow growth model, in the SS the country w the higher saving rate will have ___ level of output per person and ___ rate of growth of output per worker compared to the country w the lower saving rate.

a higher; the same

(Chapter 9) The amount of education the typical person receives varies substantially among countries. Suppose you were to compare a country with a highly educated labor force (gilder) and a country with a less educated labor force(florin). Assume that education affects only the level of the efficiency of labor. Also assume that the countries are otherwise the same: they have the same saving rate, the same depreciation rate, the same population growth rate, and the same rate of technological progress. Both countries are described by the Solow model and are in their steady states. What would you predict for the following variables? a. which country will have a higher growth of total income b. which country will have a higher level of income per worker c. which country will have a higher real rental price of capital d. how will the real wage differ between gilder and florin?

a. the growth of total income will be the same b. gilder c. they will have the same rental price of capital d. the wage per effective worker will be the same in both countries, but the wage per unit of labor will be higher in Gilder

(Chapter 8) to determine whether an economy is operating at its GR level of capital stock, a policy maker must determine the SS saving rate that produces the:

largest consumption per worker

(Chapter 8) in the solow growth model w no tech progress, the SS amount of investment can be thought of as a break-even amount of investment because the quantity of investment just equals the amount of:

capital needed to replace depreciated capital and to equip new workers

(Chapter 2) When a firm sells a product out of inventory, investment expenditures ______ and consumption expenditures ______.

decrease, increase

(Chapter 2) suppose a woman marries her butler. after they're married, her husband continues to wait on her as before, and she continues to support him as before (but as a husband rather than an employee). consider how this marriage impacts how output in the economy is calculated when the butler stops receiving a wage after the marriage, the value of GDP ------ . However, if GDP is meant to reflect the value of all domestically produced goods and services , then perhaps GDP should ---- because the butlers services continue to be provided.

decreases; remains unchanged

(Chapter 9) in the solow model w pop growth and labor augmenting tech change, the breakeven level of investment must cover

depreciating capital, capital for new workers, and capital for new effective workers

(Chapter 1) endogenous variables are

determined within the model

(Chapter 8) suppose an economy is initially in a SS with capital per worker below the GR level. if the saving rate increases to a rate consistent with the GR, then in the transition to the new SS, consumption per worker will:

first fall below and then rise above the initial level

(Chapter 9) the majority of empirical evidence supports the hypothesis that economies that are open to trade ___ than comparable closed economies.

grow more rapidly

(Chapter 8) in the solow growth model, w a given prod function, depreciation rate, savings rate, and no tech change, higher rates of pop growth produce:

higher SS growth rates of total output

(Chapter 2) which of the following is a flow variable? wealth gov debt total number of bridges in the US income

income

(Chapter 8) in the solow growth model, if investment exceeds depreciation, the capital stock will ___, and output will ____ until the SS is attained.

increase; increase

(Chapter 8) in the solow growth model, increases in capital ___ output and ___ the amount of output used to replace depreciating capital

increase; increase

(Chapter 9) which of the following changes would bring the US capital stock, currently below the GR level, closer to the SS, consumption-maximizing level? increasing savings rate increasing pop growth rate increasing rate of capital depreciation increasing rate of tech progress

increasing saving rate

(Chapter 2) When bread is baked but put away for later sale, this is called:

investment in inventory

(Chapter 9) if the per-worker prod function is y = Ak, where A is a positive constant, then the marginal prod of capital:

is constant as k increases

(Chapter 8) if an economy moves from a SS w positive pop growth to a 0 pop growth rate, then in the new SS, total output growth will be ___, and growth of ouput per person will be ___

lower; the same as it was before

(Chapter 2) RGDP is a better measure of economic wellbeing than nominal GDP because RGDP:

measures changes in the quantity of goods and services produced by holding prices constant

(Chapter 2) the panel of economists pointed by the Senate Finance Committee estimated that the CPI ____ inflation by approximately ___ percentage points per year

overestimates; 1

(Chapter 1) a graph of the rate of inflation in the US over the 20th century shows that

some periods of deflation mixed w mostly positive rates of inflation before 1955 but only positive rates of inflation after 1955

(Chapter 9) endogenous growth theory rejects the idea the assumption of exogenous

tech change

(Chapter 8) in the solow growth model w pop growth but no tech progress, when the economy finds itself at the GR SS, the marginal product of capital minus the rate of depreciation rate will equal

the pop growth rate

(Chapter 1) example of a sticky price

the price of a soda in a vending machine

(Chapter 2) GDP is all of the following except: the overall expenditure on the economy's output of goods and services the total output of the economy the total income of everybody in the economy the total expenditure of everyone in the economy

the total expenditure of everyone in the economy

(Chapter 8) assume that a war reduces a country's labor force but doesnt directly affect its capital stock. then the immediate impact will be that

total output will fall, but output per worker will rise